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DRAFT for review purposes only. Use of contents on this sheet is subject to the limitations specified at the end of this document.
Appendix J: Current Water Rate Table
2025 Urban Water Management Plan Appendix J
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DRAFT for review purposes only. Use of contents on this sheet is subject to the limitations specified at the end of this document.
This page intentionally left blank.
CITY OF BRENTWOOD
Water and Wastewater
Rate Study
FINAL DRAFT REPORT / April 11, 2023
445 S. Figueroa Street, Suite 1925, Los Angeles, CA 90071 www.raftelis.com
April 11, 2023
Ms. Debra Galey
Senior Analyst
City of Brentwood
150 City Park Way
Brentwood, CA 94513
Subject: Water and Wastewater Financial Plan Study Report Dear Ms. Galey:
Raftelis is pleased to provide this Water and Wastewater Financial Plan study report for the City of Brentwood (City) to address current financial challenges the City is facing and to establish water and wastewater rates that equitably recover costs from its customers.
The major objectives of the study include the following:
• Develop financial plans for the water and wastewater enterprises to ensure financial sufficiency, meet operation and maintenance (O&M) costs, ensure sufficient funding for capital replacement and refurbishment (R&R) needs, and improve the financial health of the enterprises • Develop sound and sufficient reserve fund targets and reserves • Review current rate structures for the water and wastewater enterprises • Prepare a five-year schedule of rates
The report summarizes the key findings and recommendations related to developing the financial plans for water and wastewater utilities and the development of the updated water and wastewater rates.
It has been a pleasure working with you, and we thank you and the City staff for the support provided during the course of this study.
Sincerely,
Sudhir D. Pardiwala, P.E. Theresa Jurotich
Executive Vice President Manager
City of Brentwood / Water and Wastewater Rate Study
Contents
1. Executive Summary ..................................................................... 1
1.1. System Background .....................................................................................................1
1.2. Water Enterprise Financial Plan ..................................................................................2
1.3. Proposed Water Rates..................................................................................................4
1.4. Customer Impacts - Water............................................................................................5
1.5. Wastewater Enterprise Financial Plan ........................................................................5
1.6. Proposed Wastewater Rates........................................................................................8
1.7. Customer Impacts – Wastewater.................................................................................8
1.8. Drought Surcharge .......................................................................................................9
2. Overview..................................................................................... 10
2.1. Introduction .................................................................................................................10
2.2. Legal Requirements and Rate Setting Methodology ...............................................10
3. Water Rates................................................................................ 12
3.1. Water System Background.........................................................................................12
3.2. Water Account and Usage Assumptions ..................................................................12
3.3. Inflationary and Other Assumptions .........................................................................14
3.4. Water Enterprise Financial Plan ................................................................................14
3.4.1. Revenue Requirement .................................................................................................. 14
3.5. Water Cost-of-Service Analysis .................................................................................20
3.5.1. Allocation of Functionalized Expenses to Cost Components ......................................... 21
3.5.2. Revenue Requirement Determination ........................................................................... 25
3.5.3. Unit Cost Component Derivation ................................................................................... 25
3.5.4. Distribution of Cost Causation Components to Customer Classes ................................ 26
3.6. Water Rate Design ......................................................................................................27
3.6.1. Existing Rate Structure and Rates................................................................................. 27
3.6.2. Proposed Monthly Fixed Charge ................................................................................... 28
3.6.3. Proposed Commodity Rates.......................................................................................... 29
3.6.4. 5-Year Proposed Monthly Water Rates ......................................................................... 33
3.7. Water Bill Impacts .......................................................................................................34
4. Wastewater Rates...................................................................... 35
City of Brentwood / Water and Wastewater Rate Study
4.1. Wastewater System Background...............................................................................35
4.2. Wastewater Account and Usage Assumptions ........................................................35
4.3. Inflationary and Other Assumptions .........................................................................37
4.4. Wastewater Enterprise Financial Plan ......................................................................37
4.4.1. Revenue Requirement .................................................................................................. 37
4.5. Wastewater Cost-of-Service Analysis .......................................................................42
4.5.1. Costs-of-Service to be Allocated ................................................................................... 43
4.5.2. Cost Allocation to Wastewater Cost Causation Parameters .......................................... 44
4.5.3. Unit Cost-of-Service ...................................................................................................... 44
4.6. Wastewater Rate Derivation.......................................................................................46
4.6.1. Existing Rate Structure and Rates................................................................................. 46
4.6.2. Proposed Rates ............................................................................................................ 47
4.7. Wastewater Bill Impacts .............................................................................................48
5. Drought Surcharge ..................................................................... 49
City of Brentwood / Water and Wastewater Rate Study
Tables
Table 1-1: Annual Water Revenue Adjustments....................................................................................... 3 Table 1-2: Proposed Monthly Water Rates............................................................................................... 5 Table 1-3: Residential Water Monthly Rate Impacts................................................................................. 5 Table 1-4: Annual Wastewater Revenue Adjustments ............................................................................. 7 Table 1-5: Proposed Monthly Wastewater Rates ..................................................................................... 8 Table 1-6: Residential Wastewater Monthly Rate Impacts ....................................................................... 8 Table 1-7: Drought Surcharge by Percent Usage Reduction.................................................................... 9 Table 3-1: Projected Water Accounts by Meter Size .............................................................................. 13 Table 3-2: Water Account Growth .......................................................................................................... 13 Table 3-3: Projected Water Use by Customer Class .............................................................................. 13 Table 3-4: Projected Water Enterprise O&M Expenses.......................................................................... 15 Table 3-5: Detailed Water Enterprise Capital Improvement Plan – Inflated ............................................ 15 Table 3-6: Water Enterprise Debt Service Payments ............................................................................. 16 Table 3-7: Proposed Water Revenue Adjustments................................................................................. 16 Table 3-8: Proposed Water Enterprise Cash Flow ................................................................................. 17 Table 3-9: Water Enterprise Debt Coverage Calculation........................................................................ 18 Table 3-10: Projected Water Enterprise Cash Balance .......................................................................... 20 Table 3-11: System-Wide Peaking Factors and Allocation to Cost Causation Components ................... 21 Table 3-12: Peaking Factors by Customer Class ................................................................................... 22 Table 3-13: Equivalent Meters ............................................................................................................... 23 Table 3-14: Allocation of Functionalized O&M and Capital Expenses to Cost Causation Components - Water..................................................................................................................................................... 24 Table 3-15: Water Revenue Requirement Determination....................................................................... 25 Table 3-16: Derivation of Service Units - Water ..................................................................................... 26 Table 3-17: Unit Cost Calculation - Water.............................................................................................. 26 Table 3-18: Allocation of Cost to Customer Class – Water..................................................................... 27 Table 3-19: Existing Monthly Water Rates ............................................................................................. 28 Table 3-20: Derivation of the Monthly Fixed Charge .............................................................................. 28 Table 3-21: Allocation of Water Supply .................................................................................................. 31 Table 3-22: Peaking Cost Calculation .................................................................................................... 32 Table 3-23: Proposed Commodity Rate ................................................................................................. 32 Table 3-24: Non-Potable Water Rate Calculation................................................................................... 33 Table 3-25: Proposed Monthly Water Rates........................................................................................... 33 Table 3-26: Residential Water Monthly Rate Impacts............................................................................. 34
City of Brentwood / Water and Wastewater Rate Study
Table 4-1: Projected Wastewater Accounts by Customer Class............................................................. 35 Table 4-2: Wastewater Account Growth................................................................................................. 36 Table 4-3: Projected Billed Wastewater Flow by Customer Class, kgal.................................................. 36 Table 4-4: Projected Wastewater Enterprise O&M Expenses................................................................. 37 Table 4-5: Detailed Wastewater Enterprise Capital Improvement Plan – Inflated................................... 38 Table 4-6: Wastewater Enterprise Debt Service Payments .................................................................... 38 Table 4-7: Proposed Wastewater Revenue Adjustments ....................................................................... 39 Table 4-8: Proposed Wastewater Enterprise Cash Flow ........................................................................ 39 Table 4-9: Wastewater Enterprise Debt Coverage Calculation............................................................... 40 Table 4-10: Wastewater Enterprise Projected Cash Balance ................................................................. 42 Table 4-11: Allocation of Wastewater Revenue Requirements............................................................... 43 Table 4-12: Mass Balance ..................................................................................................................... 45 Table 4-13: Units of Service................................................................................................................... 45 Table 4-14: Development of Unit Costs.................................................................................................. 46 Table 4-15: Existing Monthly Wastewater Rates .................................................................................... 47 Table 4-16: Consolidated Non-Residential Wastewater Customer Classes............................................ 47 Table 4-17: Proposed Monthly Wastewater Rates ................................................................................. 48 Table 4-18: Average Residential Wastewater Monthly Rate Impacts ..................................................... 48 Table 5-1: Projected Water Demand by Percent Usage Reduction ........................................................ 49 Table 5-2: Estimated Cost Savings by Percent Usage Reduction .......................................................... 50 Table 5-3: Drought Surcharge by Percent Usage Reduction.................................................................. 50 Figures
Figure 1-1: Water Enterprise Projected O&M Expenses........................................................................... 2 Figure 1-2: Water Enterprise Capital Financing Plan................................................................................ 3 Figure 1-3: Water Enterprise Total Cash Balance .................................................................................... 4 Figure 1-4: Wastewater Enterprise Projected O&M Expenses ................................................................. 6 Figure 1-5: Wastewater Enterprise Capital Financing Plan ...................................................................... 7 Figure 1-6: Wastewater Enterprise Cash Balance.................................................................................... 8 Figure 3-1: Proposed Water Enterprise Revenue Adjustments and Debt Coverage Ratios.................... 18 Figure 3-2: Proposed Potable Water Financial Plan............................................................................... 19 Figure 3-3: Projected Water Enterprise Capital Projects ........................................................................ 19 Figure 3-4: Water Enterprise Total Cash Balance .................................................................................. 20 Figure 4-1: Proposed Wastewater Enterprise Revenue Adjustments and Debt Coverage Ratio ............ 40
City of Brentwood / Water and Wastewater Rate Study
Figure 4-2: Proposed Wastewater Enterprise Financial Plan ................................................................. 41 Figure 4-3: Projected Wastewater Enterprise CIP and Funding Sources ............................................... 41 Figure 4-4: Wastewater Enterprise Total Cash Balance......................................................................... 42 Appendices
Appendix A: Water Cost-of-Service Tables
Appendix B: Wastewater Cost-of-Service Tables
Appendix C: Projected Water Demand Based on Reduction Level
City of Brentwood / Water and Wastewater Rate Study
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City of Brentwood / Water and Wastewater Rate Study 1
1. Executive Summary
In 2022, the City of Brentwood (City) engaged Raftelis Financial Consultants, Inc. (Raftelis) to conduct a comprehensive Water and Wastewater Cost-of-Service study to determine user charges for the City’s water and wastewater services that ensure proportionate recovery of costs from the various user classes. This report documents the resultant findings, analyses, and recommendations.
The major objectives of the study include the following:
• Develop Financial Plans for the water and wastewater funds to ensure financial sufficiency, recover operation and maintenance (O&M) costs, meet debt coverage requirements, fund capital repairs and replacements (R&R), and ensure sufficient funding of City financial reserves. • Conduct a Cost-of-Service analysis for the water and wastewater systems to recover costs proportionate to the service received.
• Develop fair and equitable water and wastewater rates that provide revenue stability for recovering fixed costs, maintain affordable service, and align with the requirements of Proposition 218.
The water cost-of-service study was prepared using the principles established by the American Water Works Association (AWWA). AWWA “Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices M1 (seventh edition) (the “M1 Manual”). The wastewater cost-of-service study was prepared based on the principles established by the Water Environment Federation (WEF) and described in Financing and Charges for Wastewater Systems.
This executive summary provides an overview of the study and includes findings and recommendations for water and wastewater rates.
A fiscal year for the City is from July 1 to June 30 the following year. Therefore, July 1, 2022, through June 30, 2023, is identified as FY 2023; July 1, 2023, through June 30, 2024, is identified as FY 2024 and so on.
The City bills are based on a thousand gallons (kgal); therefore, one unit of water is a thousand gallons.
1.1. System Background
The City was incorporated in 1948 and provides potable water to approximately 21,500 connections serving a population of approximately 64,900. The City supplies potable water from the City’s wells, as well as from surface water that is treated at the City of Brentwood Treatment Plant (Brentwood TP). The City contracts with Contra Cost Water District to receive water treated at the Randall Bold Water Treatment Plant (RBWTP) on a take-or-pay basis. Surface water originates in the Sierra Nevada mountains and is diverted from the Sacramento-San Joaquin Delta. The City’s water distribution system includes about 300 miles of water mains. The cost of water supply has increased during the recent drought due to tightening water supplies and environmental and regulatory requirements.
Additionally, non-potable water is available in some areas of the City for irrigation and is supplied with untreated water pumped from the Sacramento-San Joaquin Delta by the East Contra Costa Irrigation District.
The City’s Wastewater Treatment Plant (WWTP) also produces recycled water suitable for non-potable reuse.
Recycled water is distributed through the City’s non-potable water supply system.
City of Brentwood / Water and Wastewater Rate Study 2
The City wastewater system collects, treats, and disposes of wastewater from approximately 21,100 connections. Wastewater is treated at the City’s WWTP with a current capacity of 5.0 million gallons per day (MGD). The WWTP is an extended aeration/activated sludge facility. Treated effluent, if not recycled, is discharged into Marsh Creek. In addition to the treatment plant, the wastewater system includes approximately 200 miles of wastewater mains and lateral connections.
1.2. Water Enterprise Financial Plan
To determine the revenue adjustments needed to meet the ongoing expenses of the City’s water enterprise and provide fiscal stability, Raftelis projected the revenue requirements, including operations and maintenance (O&M) expenses, capital improvement expenses, debt service costs, reserve requirements, etc., for the study period. O&M expenses include the cost of operating and maintaining water supply, treatment, storage, and distribution facilities, as well as the costs of providing technical services such as engineering services and other administrative costs of the water system such as meter reading and billing. O&M projections are based on the City’s projected budgetary increases in FY 2024 and beyond. The City uses inflation factors that are indicative of industry increases for different expenditures within the budget, such as personnel, supplies, or fuel, to capture the impact of various market forces. Potable water usage is projected to remain constant (excluding usage growth due to new accounts). The proposed financial plan and water rates are based on this level of water usage. Figure 1-1 shows the projected water O&M expenses over the planning period.
Figure 1-1: Water Enterprise Projected O&M Expenses
In addition to operating expenses, the City is planning capital expenditures totaling about $14.5 million, to be funded by water rates from FY 2024 through FY 2028. Existing annual debt service payments are about $2.8 million over the planning period. No new debt is anticipated. Figure 1-2 shows the water CIP that will be funded by rates over the planning period.
$0
$5
$10
$15
$20
$25
$30
$35
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Millions
Projected O&M Expenses
Supply (Surface Water) Production (Wells) Treatment Distribution Utility Billing Non-Potable
City of Brentwood / Water and Wastewater Rate Study 3
Figure 1-2: Water Enterprise Capital Financing Plan
To ensure that the City will have adequate revenues to fund water operating and capital expenses and to maintain sufficient reserves, Raftelis recommends the revenue adjustments in Table 1-1.
Table 1-1: Annual Water Revenue Adjustments
Fiscal Year Effective Date Revenue Adjustment
FY 2024 July 1, 2023 6.5%
FY 2025 July 1, 2024 6.5%
FY 2026 July 1, 2025 6.5%
FY 2027 July 1, 2026 6.5%
FY 2028 July 1, 2027 6.5%
Figure 1-3 shows the resulting cash balance for the water utility. The red line represents the total current target, which is equal to 30 percent of annual operating expenses and debt service payments. $2.3
$4.5
$3.5
$2.2 $2.2
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Millions
Capital Financing Plan
Bond Funded CIP Rate Funded CIP
City of Brentwood / Water and Wastewater Rate Study 4
Figure 1-3: Water Enterprise Total Cash Balance
1.3. Proposed Water Rates
Raftelis recommends that the City retain its current inclining rate structure, as well as current residential and non-residential tier definitions that are based upon the cost and availability of groundwater and surface water supply sources and customers’ usage characteristics. The current residential tiers are: Tier 1 is set at 0 to 5 thousand gallons (kgal) per month; Tier 2 is set at 6 to 14 kgal per month; Tier 3 is set at 15 to 20 kgal per month; Tier 4 is any usage above Tier 3. Non-residential customers currently have two tiers, with Tier 1 set at 0 to 5 kgal per month and Tier 2 defined as any usage above Tier 1. The rates are revised to be more consistent with the actual cost of service. Table 1-2 shows the proposed rates for the next five years, effective July 1 of each year.
$13.1M
$10.3M
$8.8M
$9.6M
$11.0M
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$4
$6
$8
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$12
$14
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Millions
Water Fund Balance
Total Funds Current Target incl 30% Reserve
City of Brentwood / Water and Wastewater Rate Study 5
Table 1-2: Proposed Monthly Water Rates
The City reserves the right to pass through costs that are not within the City’s control, such as water purchased costs, electrical costs, chemical costs, etc. to the proposed rates when such an action is deemed necessary. The financial plan has built in projected increases in these costs. However, if those costs exceed the projected amount, the additional costs may be recovered through higher rates.
1.4. Customer Impacts - Water
Table 1-3 below shows the impacts of the proposed rates on a typical residential customer with a 1-inch meter using an average of 10 kgal of water monthly. Actual impacts will vary per customer dependent upon water usage.
Table 1-3: Residential Water Monthly Rate Impacts
1.5. Wastewater Enterprise Financial Plan
Raftelis projected the revenue requirements, including O&M expenses, capital improvement expenses, debt service costs, and reserve requirements for the wastewater enterprise over the study period. O&M expenses Current July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 Monthly Base Rate
Meter Size
5/8" or 3/4" $27.61 $28.16 $30.00 $31.95 $34.03 $36.25
1" $39.03 $41.24 $43.93 $46.79 $49.84 $53.08
1 1/2" $67.61 $73.91 $78.72 $83.84 $89.29 $95.10
2" $101.90 $113.13 $120.49 $128.33 $136.68 $145.57
3" $210.52 $237.31 $252.74 $269.17 $286.67 $305.31
4" $295.65 $420.31 $292.65 $293.65 $294.65 $295.65
6" $753.55 $858.20 $913.99 $973.40 $1,036.68 $1,104.07
Commodity Rate ($/kgal)
Residential Monthly (kgal)
Tier 1 5 $3.28 $3.18 $3.39 $3.62 $3.86 $4.12
Tier 2 14 $6.31 $6.60 $7.03 $7.49 $7.98 $8.50
Tier 3 20 $7.41 $8.33 $8.88 $9.46 $10.08 $10.74
Tier 4 21+ $7.64 $8.43 $8.98 $9.57 $10.20 $10.87
Non-Residential
Tier 1 5 $3.39 $3.20 $3.41 $3.64 $3.88 $4.14
Tier 2 6+ $6.87 $7.98 $8.50 $9.06 $9.65 $10.28
Hydrant $6.87 $8.91 $9.49 $10.11 $10.77 $11.48
Non-Potable $1.60 $1.08 $1.19 $1.23 $1.27 $1.31
Residential Usage (kgal) Current Bill Proposed Bill Difference $ Difference % Bills at or below
Average 10 $86.98 $90.14 3.6% $3.16 65.2%
City of Brentwood / Water and Wastewater Rate Study 6
include wastewater collection, wastewater treatment, billing, and lateral maintenance. O&M projections are based on the City’s projected budgetary increases in FY 2024 and beyond. The City uses different inflation factors for different expenditures within the budget. Figure 1-4 shows the projected wastewater enterprise O&M expenses over the planning period.
Figure 1-4: Wastewater Enterprise Projected O&M Expenses In addition to operating expenses, the City’s wastewater enterprise is planning capital expenditures totaling about $5.1 million over the study period. Wastewater rate revenue will be used to finance planned capital expenditures. Existing annual debt service payments increase from $191,000 to about $1 million over the planning period. Figure 1-5 shows the wastewater enterprise’s CIP funded by rates over the planning period. $0
$2
$4
$6
$8
$10
$12
$14
$16
$18
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
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City of Brentwood / Water and Wastewater Rate Study 7
Figure 1-5: Wastewater Enterprise Capital Financing Plan To ensure that the City will have adequate revenues to fund the wastewater enterprise’s operating and capital expenses and to maintain sufficient reserves, Raftelis recommends the revenue adjustments shown in Table 1-4. The proposed adjustments are necessary to meet debt service coverage requirements of 110 percent for the SRF loans.
Table 1-4: Annual Wastewater Revenue Adjustments
Fiscal Year Effective Date Revenue Adjustment
FY 2024 July 1, 2023 2.0%
FY 2025 July 1, 2024 2.0%
FY 2026 July 1, 2025 2.0%
FY 2027 July 1, 2026 2.0%
FY 2028 July 1, 2027 2.0%
Figure 1-6 shows the resulting cash balance for the wastewater enterprise. The red line represents the total current target, which is equal to 30 percent of the wastewater enterprise’s annual operating expenses and debt service payments. It should be noted that while the cash balance is projected to exceed the target, SRF loan debt coverage calculations do not take into account existing cash balance when meeting coverage requirements.
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$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Millions Capital Financing Plan
Rate Funded
City of Brentwood / Water and Wastewater Rate Study 8
Figure 1-6: Wastewater Enterprise Cash Balance
1.6. Proposed Wastewater Rates
Table 1-5 shows proposed wastewater rates for FY 2024 through FY 2028. Revenue adjustments of 2% occur on July 1 of each fiscal year throughout the planning period.
Table 1-5: Proposed Monthly Wastewater Rates
1.7. Customer Impacts – Wastewater
Table 1-6 shows the monthly bill impact for residential customers at average winter usage. Note that residential customers are currently billed based on water use during the two lowest-use winter months.
Table 1-6: Residential Wastewater Monthly Rate Impacts
$20.9M
$18.7M $17.9M $16.9M $15.6M
$0
$5
$10
$15
$20
$25
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Millions WW Fund Balance
Total Funds Target with 30% Reserve
July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 Monthly Base Charge (per dwelling unit) $19.51 $19.91 $20.31 $20.72 $21.14 Monthly Lateral Maintenance Fee (per account) $4.07 $4.16 $4.25 $4.34 $4.43 Residential Variable Charge per unit ($/kgal)* $6.70 $6.84 $6.98 $7.12 $7.27 Residential Monthly Maximum Charge (capped 7 kgal/mo) $70.48 $71.95 $73.42 $74.90 $76.46 Non-Residential Variable Charge ($/kgal of actual water use) Low Strength $4.53 $4.63 $4.73 $4.83 $4.93
Medium Low Strength $5.13 $5.24 $5.35 $5.46 $5.57
Medium Strength $5.76 $5.88 $6.00 $6.12 $6.25
Medium High Strength $10.16 $10.37 $10.58 $10.80 $11.02 High Strength $11.60 $11.84 $12.08 $12.33 $12.58
*Residential users' variable charge is based on water usage during two lowest production winter months. Capped at 7 kgal/mo.
Monthly Usage
(kgal)
Current
Monthly Bill
Proposed
Monthly Bill
Difference
($) Difference %
% of Bills At
or Below
Average 4 $47.33 $50.38 $3.05 6.4% 44%
City of Brentwood / Water and Wastewater Rate Study 9
1.8. Drought Surcharge
In case of drought and further sales reductions, the City would lose revenue and fail to cover its expenses.
Raftelis has developed drought rates to supplement reduced revenue due to drought as shown in Table 1-7.
Table 1-7: Drought Surcharge by Percent Usage Reduction FY 2024
10%
Reduction
20%
Reduction
30%
Reduction
40%
Reduction
50%
Reduction
Projected Potable Variable Revenue $19,178,966 $17,162,016 $15,334,702 $13,811,009 $11,762,816 $10,219,536 Revenue Shortfall ($2,016,951) ($3,844,264) ($5,367,958) ($7,416,150) ($8,959,430) Cost Savings $647,261 $1,269,944 $1,641,164 $2,290,650 $2,824,388 Net Revenue Shortfall to be Recovered ($1,369,690) ($2,574,321) ($3,726,793) ($5,125,500) ($6,135,042) % Revenue Shortfall 8% 17% 27% 44% 60%
$ Increase per unit - July 1, 2023 $0.46 $0.95 $1.50 $2.35 $3.16
City of Brentwood / Water and Wastewater Rate Study 10
2. Overview
2.1. Introduction
In 2022, the City engaged Raftelis Financial Consultants, Inc. (Raftelis) to conduct a comprehensive Water and Wastewater Cost-of-Service study that could be utilized to evaluate and optimize user charges for the City’s water and wastewater services while ensuring a proportionate recovery of costs from the various user classes. This report documents the resultant findings, analyses, and recommendations.
The major objectives of the study include the following:
• Develop Financial Plans for the water and wastewater enterprises to ensure financial sufficiency, meet operation and maintenance (O&M) costs, ensure sufficient funding of City financial reserves, meet debt coverage requirements, and fund capital repairs and replacements (R&R). • Conduct a Cost-of-Service analysis for the water and wastewater systems. • Develop fair and equitable water and wastewater rates that adequately recover costs, provide revenue stability for recovering fixed costs, and maintain affordable service, and align with the requirements of Proposition 218.
2.2. Legal Requirements and Rate Setting Methodology
The water cost-of-service study was prepared using the principles established by the AWWA. AWWA “Principles of Water Rates, Fees, and Charges: Manual of Water Supply Practices M1 (seventh edition) (the “M1 Manual”). The wastewater cost-of-service study was prepared based on the principles established by the WEF and described in Financing and Charges for Wastewater Systems. The general principles of rate structure design and the objectives of the study are described below.
According to the M1 Manual, the first step in the ratemaking process is to determine the adequate and appropriate level of funding for a given utility. This is referred to as determining the “revenue requirement.” This analysis considers the short-term and long-term service objectives of the utility over a given planning horizon, including capital facilities, system operations and maintenance, and financial reserve policies, to determine the adequacy of a utility’s existing rates to recover its costs. A number of factors may affect these projections, including the number of customers served, water-use trends, extraordinary gains or expenses, weather, conservation, use restrictions, inflation, interest rates, capital finance needs, changes in tax laws, and other changes in operating and economic conditions.
After determining a utility’s revenue requirements, the next step is determining the cost-of-service. Utilizing a public agency’s approved budget, financial reports, operating data, and capital improvement plans, a cost-ofservice study generally categorizes the operating system costs by function (e.g., treatment, storage, pumping, distribution/collection, etc.). Asset costs are similarly functionalized to determine the cost-of-service.
After the assets and the costs of operating those assets are properly categorized by function, these “functionalized costs” are allocated first to cost causation components and then to the various customer classes (e.g., single-family residential, multi-family residential, and commercial) by determining the characteristics of those classes and the contribution of each to incurred costs such as base costs, peaking costs, delivery costs, service characteristics, and demand patterns for water and flow and strength for wastewater.
City of Brentwood / Water and Wastewater Rate Study 11
Rate design is the final part of the rate-making procedure and uses the revenue requirement and cost-ofservice analysis to determine appropriate rates for each customer class. Rates utilize “rate components” that build-up to rates for commodity charges, and rates for fixed charges, for the various customer classes and meter sizes servicing customers. In the case of inclining tier water rates, the rate components define the costof-service within each customer class, effectively treating each tier as a sub-class and determining the cost to serve each tier.
California Constitution – Article XIII D, Section 6 (Proposition 218) Proposition 218, reflected in the California Constitution as Article XIII D, was enacted in 1996 to ensure that rates and fees are reasonable and proportional to the cost of providing service. The principal requirements, as they relate to public water service are as follows:
• A property-related charge (such as water rates) imposed by a public agency on a parcel shall not exceed the costs required to provide the property related service. • Revenues derived by the charge shall not be used for any purpose other than that for which the charge was imposed.
• The amount of the charge imposed upon any parcel shall not exceed the proportional cost-of-service attributable to the parcel.
• No charge may be imposed for a service unless that service is actually used or immediately available to the owner of property.
• A written notice of the proposed charge shall be mailed to the record owner of each parcel at least 45 days prior to the public hearing, when the agency considers all written protests against the charge.
As stated in AWWA’s M1 Manual, “water rates and charges should be recovered from classes of customers in proportion to the cost of serving those customers.” Raftelis follows industry standard rate setting methodologies set forth by the AWWA M1 Manual to ensure this study aligns with Proposition 218 requirements and creates rates that do not exceed the proportionate cost of providing water services on a parcel basis. The methodology in the M1 Manual is a nationally recognized industry ratemaking standard which courts have recognized is consistent with Proposition 218.
California Constitution Article X, section 2 mandates that water resources be put to beneficial use and that the waste or unreasonable use of water be prevented through conservation. Section 106 of the Water Code declares that the highest priority use of water is for domestic purposes, with irrigation secondary. Thus, management of water resources is part of the property-related service provided by public water suppliers to ensure the resource is available over time. The City established inclining tiered (also known as inclining block) water rates to incentivize customers to conserve water. The inclining tier rates (as well as rates for uniform rate classes) need to be based on the proportionate costs incurred to provide water to customers to achieve compliance with Proposition 218.
Tiered Rates – “Inclining” tier rate structures (which are synonymous with “increasing” tier rate structures and “tiered” rates), when properly designed and differentiated by customer class, allow a water utility to send conservation price signals to customers. Due to heightened interest in water conservation and efficiency of water use, inclining tier water rates have gained widespread use, especially in relatively water-scarce regions like Southern California. Tiered rates meet the requirements of Proposition 218 as long as the tiered rates reasonably reflect the proportionate cost of providing service in each tier.
City of Brentwood / Water and Wastewater Rate Study 12
3. Water Rates
This section describes the long-range financial plan for the water utility, findings and results of the water rate study, a detailed discussion of the proposed water rates, and the customer impacts resulting from the proposed rates. It also includes a description of the water system, the determination of annual revenues required from rates, and a detailed discussion of the cost-of-service, which includes allocation of costs to water cost causation parameters and the determination of unit costs.
3.1. Water System Background
The City was incorporated in 1948 and provides potable water to approximately 21,500 connections serving a population of approximately 64,900. In FY 2022, the City supplied approximately 1,775 AF of water from the City’s wells, as well as an additional 9,429 AF of water from the City of Brentwood Treatment Plant (Brentwood TP) and the Randall Bold Water Treatment Plant (RBWTP). The City has a take-or-pay contract with Contra Costa Water District to receive water from the RBWTP. Potable water delivered to customers is a blend of City well water and treated surface water. Surface water originates in the Sierra Nevada mountains and is diverted from the Sacramento-San Joaquin Delta. The City’s water distribution system includes about 300 miles of water mains. Based on the City’s records, the cost of supplying water has increased during the recent drought due to reduced water usage and environmental and regulatory requirements. To meet water quality requirements, it has been necessary for the City to reduce its supply from groundwater wells and increase supply through the Brentwood TP, which is a more extensive and costly process.
Additionally, non-potable water is available in some areas of the City for irrigation. The City’s non-potable supply is untreated water pumped from the Sacramento-San Joaquin Delta by the East Contra Costa Irrigation District, as well as recycled water produced at the City’s Wastewater Treatment Plant (WWTP).
3.2. Water Account and Usage Assumptions
Table 3-1 shows the estimated number of water accounts by meter size for FY 2022 through FY 2028. Raftelis estimated the number of accounts by tabulating FY 2022 (actual) account data provided by the City and escalating the number of accounts based on account growth rates shown in Table 3-2. Account growth rates are based on the City’s General Plan population growth rates and are typically driven by new residential and nonresidential development. The number of accounts (meters) is used to forecast the fixed revenue the City will receive from the meter service charge.
City of Brentwood / Water and Wastewater Rate Study 13
Table 3-1: Projected Water Accounts by Meter Size
Table 3-2: Water Account Growth
Table 3-3 shows actual water use in FY 2022 and projected water use for FY 2023 through FY 2028 by customer class. The revenue calculated in each fiscal year in the Water Enterprise Financial Plan is a function of the number of meters, meter size, account growth, water use, and existing rates. The rate study determines water rates for the next five years based on usage assumptions for FY 2024 through FY 2028.
Table 3-3: Projected Water Use by Customer Class
Actual Projected Projected Projected Projected Projected Projected FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 5/8" or 3/4" 7,920 8,016 8,122 8,193 8,222 8,255 8,289
1" 12,568 12,720 12,888 13,001 13,046 13,100 13,153
1 1/2" 247 250 253 255 256 257 258
2" 454 459 465 469 470 472 474
3" 42 42 43 43 43 43 43
4" 35 35 36 36 36 36 36
6" 11 11 11 11 11 11 11
Total Meters 21,277 21,534 21,817 22,008 22,085 22,175 22,266 Fiscal Year Account Growth
FY 2023 1.21%
FY 2024 1.32%
FY 2025 0.88%
FY 2026 0.35%
FY 2027 0.41%
FY 2028 0.41%
Water Use (kgal) Tier Limit (kgal) FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Residential
Tier 1 5 1,145,110 1,158,966 1,174,264 1,184,598 1,188,744 1,193,618 1,198,511 Tier 2 14 935,560 946,880 959,379 967,822 971,209 975,191 979,189 Tier 3 20 220,956 223,630 226,581 228,575 229,375 230,316 231,260 Tier 4 21+ 210,382 212,928 215,738 217,637 218,398 219,294 220,193 Subtotal Residential 2,512,008 2,542,403 2,575,963 2,598,631 2,607,727 2,618,418 2,629,154 Non-Residential
Tier 1 5 45,908 46,463 47,077 47,491 47,657 47,853 48,049 Tier 2 6+ 631,542 639,184 647,621 653,320 655,607 658,295 660,994 Subtotal Non-Residential 677,450 685,647 694,698 700,811 703,264 706,147 709,042 Hydrant 9,893 9,893 9,893 9,893 9,893 9,893 9,893
Subtotal Hydrant 9,893 9,893 9,893 9,893 9,893 9,893 9,893 Non-Potable 475,961 479,924 484,299 487,254 488,440 489,834 491,233 TOTAL USAGE 3,675,312 3,717,867 3,764,852 3,796,590 3,809,323 3,824,292 3,839,323
City of Brentwood / Water and Wastewater Rate Study 14
3.3. Inflationary and Other Assumptions
This subsection describes the assumptions used in projecting operating and capital expenses that determine the overall revenue adjustments required to ensure the financial stability of the City’s water enterprise.
Revenue adjustments represent the average increase in rates for the City as a whole. Note that rate changes for individual classes will depend upon the cost of service and actual volume of water used.
To ensure that future costs are reasonably projected, it is necessary to make informed assumptions about inflationary factors, water costs, and use. Non-rate revenue and O&M projections are based on the City’s FY 2024 projections and projected budgetary increases in FY 2025 through FY 2028. The City uses inflation factors that are indicative of industry increases for different expenditures within the budget, such as personnel, supplies, or fuel, to capture the impact of market forces over time. On average, the O&M costs are increasing by approximately 6.7 percent per year throughout the study period.
3.4. Water Enterprise Financial Plan
The assumptions discussed above were incorporated into the Water Enterprise Financial Plan. To develop the Water Enterprise Financial Plan, Raftelis projected annual expenses and revenues and modeled reserve balances, capital expenditures, and calculated debt service coverage ratios to estimate the additional rate revenue needed per year. This section of the report discusses O&M expenses, the Capital Improvement Plan (CIP), reserve funding, projected revenue under existing rates, and the revenue adjustments needed to ensure the fiscal sustainability and solvency of the City.
3.4.1. Revenue Requirement
A utility’s yearly revenue requirement is the yearly revenue needed to operate, maintain, and ensure fiscal solvency. The revenue requirement includes O&M expenses, rate funded capital expenditures, debt service payments, and reserve requirements (funding for reserves). The basis of the expenses is the City’s Fiscal Model, Operating Budget, and 5-year Capital Improvement Program.
3.4.1.1. O&M Expenses
The water enterprise’s projected O&M expenses are shown in Table 3-4. The Water Enterprise Financial Plan study period is from FY 2024 to FY 2028. O&M expenses include the cost of purchased surface water, operating and maintaining groundwater wells, treatment, distribution facilities, meter reading, billing, and providing non-potable water service. Table 3-4 summarizes the projected O&M expenses in two different ways: by function and by type of expenditures.
City of Brentwood / Water and Wastewater Rate Study 15
Table 3-4: Projected Water Enterprise O&M Expenses
3.4.1.2. Capital Improvement Plan
Table 3-5 shows the City’s CIP for FY 2024 through FY 2028, which totals approximately $14.5 million. The projects will be funded through rates.
Table 3-5: Detailed Water Enterprise Capital Improvement Plan – Inflated
3.4.1.3. Debt Service
The City is not planning to issue any additional debt during this planning period. Table 3-6 shows the existing debt service payments for the Brentwood Water Treatment Plant through FY 2028. Annual debt service payments for the planning period average $2.6 million per year.
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Supply (Surface Water) $12,090,971 $13,346,276 $14,623,678 $16,040,219 $17,601,689 Production (Wells) $2,503,519 $2,508,820 $2,618,302 $2,723,505 $2,817,856 Treatment $2,290,824 $2,364,865 $2,468,278 $2,555,455 $2,633,662 Distribution $5,050,248 $5,201,047 $5,437,186 $5,668,924 $5,876,841 Utility Billing $2,309,529 $2,290,399 $2,374,965 $2,456,881 $2,532,452 Non-Potable $520,812 $575,329 $598,564 $620,562 $640,287 TOTAL O&M EXPENSES $24,765,904 $26,286,736 $28,120,973 $30,065,545 $32,102,787 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Personnel Services $5,299,485 $5,560,988 $5,844,235 $6,136,887 $6,388,621 Supplies and Services $14,924,939 $16,404,931 $17,800,688 $19,312,016 $20,958,511 Other Supplies and Services $2,012,975 $2,089,267 $2,173,046 $2,244,757 $2,315,691 Internal Service $1,126,872 $1,271,592 $1,315,964 $1,358,963 $1,403,393 Capital Outlay $880,821 $384,629 $388,476 $392,360 $396,284 Non-Potable $520,812 $575,329 $598,564 $620,562 $640,287 Internal Service $24,765,904 $26,286,736 $28,120,973 $30,065,545 $32,102,787 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Fund #562 - Water
80466.00 Transfer to 2015 Lease Revenue Bond $189,725 $188,312 $180,365 $172,695 $150,792 80562.00 Transfer To Water Capital Proj $390,000 $508,000 $344,000 $0 $0 80562.00 Trf To Water CIP - WWTP Admin Lab bldg (Water & WW Lab) $340,000 $860,000 $0 $0 $0 80562.00 Trf to Water CIP - Corp Yard General $0 $600,000 $0 $0 $0 80562.00 Trf to Water CIP - Corp Yard to remain $0 $500,000 $0 $0 $0 80562.00 O'Hara Ave./Lone Tree Way Water Upgrade $0 $55,000 $618,250 $0 $0 80562.00 Trf To Water CIP - Water Storage Capacity at Los Vaqueros $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 WTP Security Improvements $0 $223,000 $344,000 $0 $0
Waterline Imp - Kent Dr $335,000 $0 $0 $0 $0
Zone 2 Reduced Water Pressure Zone $0 $535,000 $0 $0 $0 WTP Expansion $0 $0 $1,000,000 $1,000,000 $1,000,000
Total Water CIP $2,254,725 $4,469,312 $3,486,615 $2,172,695 $2,150,792
City of Brentwood / Water and Wastewater Rate Study 16
Table 3-6: Water Enterprise Debt Service Payments
3.4.1.4. Proposed Financial Plan and Revenue Adjustments The proposed revenue adjustments help ensure adequate revenue to fund operating expenses, capital expenditures, and compliance with bond covenants. The Financial Plan model assumes the revenue adjustments occur on July 1 of each year. The proposed revenue adjustments would enable the City to execute the CIP shown in Table 3-5 and comply with its debt service coverage requirements over the study period.
Table 3-7 shows the proposed revenue adjustments for FY 2024 through FY 2028. These increases are needed to finance the operating and capital expenses and reserves funding.
Table 3-7: Proposed Water Revenue Adjustments
Fiscal Year Effective Date Revenue Adjustment
FY 2024 July 1, 2023 6.5%
FY 2025 July 1, 2024 6.5%
FY 2026 July 1, 2025 6.5%
FY 2027 July 1, 2026 6.5%
FY 2028 July 1, 2027 6.5%
Table 3-8 shows the cash flow detail over the next five years.
Fund 560 Only FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Water Revenue Refunding Bonds Series 2014
Principal $1,437,096 $1,547,096 $1,647,096 $1,102,096 $1,187,096 Interest $1,398,560 $1,296,060 $1,188,060 $1,075,060 $989,310 Total Debt Service $2,835,656 $2,843,156 $2,835,156 $2,177,156 $2,176,406
City of Brentwood / Water and Wastewater Rate Study 17
Table 3-8: Proposed Water Enterprise Cash Flow
Table 3-9 shows the calculated debt coverage calculations for primary and secondary debt coverage requirements. The City’s debt service payments are shared proportionately between the water enterprise fund and the development impact fee fund when the funded capital project or facility provides service to both existing rate payers and new development. To calculate the City’s primary debt coverage ratios, the total revenue, including the development impact fee revenue, and the total debt service payments are included. The City’s primary debt coverage requirement is 125 percent for the water utility. To calculate the City’s secondary debt coverage ratios, total debt service payments are included, but development impact fee revenue is excluded from total revenue. The City’s secondary debt coverage requirement is 100 percent for the water utility. The City meets and exceeds its primary and secondary debt coverage requirements throughout the study period.
Potable Water FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Revenue at Current Rates $27,743,954 $27,986,676 $28,084,063 $28,198,544 $28,313,494 Additional Revenue:
Fiscal Revenue Month
Year Adjustments Effective
2024 6.5% July $1,803,357 $1,819,134 $1,825,464 $1,832,905 $1,840,377 2025 6.5% July $1,937,378 $1,944,119 $1,952,044 $1,960,002 2026 6.5% July $2,070,487 $2,078,927 $2,087,402
2027 6.5% July $2,214,057 $2,223,083
2028 6.5% July $2,367,583
Additional Rate Revenue $1,803,357 $3,756,512 $5,840,070 $8,077,934 $10,478,447 Total Rate Revenue $29,547,311 $31,743,188 $33,924,133 $36,276,478 $38,791,941 Current Services $292,964 $294,632 $299,151 $303,839 $308,169 Other Revenue $338,109 $351,212 $362,990 $375,362 $388,162 Standby Charges $38,616 $38,230 $37,848 $37,469 $37,094 Operating Transfers $350,000 $350,000 $350,000 $350,000 $350,000 Transfers from WW Fund for Water Supply Costs $0 $0 $0 $0 $0 Interest Income $78,613 $232,109 $189,230 $182,349 $203,794 TOTAL REVENUE $30,645,613 $33,009,371 $35,163,352 $37,525,497 $40,079,160 O&M Expenses
Supply (Surface Water) $12,090,971 $13,346,276 $14,623,678 $16,040,219 $17,601,689 Production (Wells) $2,503,519 $2,508,820 $2,618,302 $2,723,505 $2,817,856 Treatment $2,290,824 $2,364,865 $2,468,278 $2,555,455 $2,633,662 Distribution $5,050,248 $5,201,047 $5,437,186 $5,668,924 $5,876,841 Utility Billing $2,309,529 $2,290,399 $2,374,965 $2,456,881 $2,532,452 Transfer to Capital R&R (@80% of book depr. exp.) $2,686,296 $2,817,722 $2,817,722 $2,927,106 $2,927,106 Existing Debt Service $2,835,656 $2,843,156 $2,835,156 $2,177,156 $2,176,406 Proposed Debt Service $0 $0 $0 $0 $0
Rate Funded Capital Projects* $2,254,725 $4,469,312 $3,486,615 $2,172,695 $2,150,792 Reserve Funding $0 $0 $0 $0 $0
TOTAL EXPENSES $32,021,769 $35,841,597 $36,661,902 $36,721,940 $38,716,804 Net Cash Flow ($1,376,156) ($2,832,225) ($1,498,550) $803,557 $1,362,356 *Non-potable water is responsible for a portion of the capital costs. Potable capital costs, in addition to non-potable capital costs, represent the total Capital Improvement Plan.
City of Brentwood / Water and Wastewater Rate Study 18
Table 3-9: Water Enterprise Debt Coverage Calculation
The next four figures display the Financial Plan in graphical format. Figure 3-1 shows the modeled revenue adjustments (blue bars) for the next five years on the left-hand axis. The green and red lines on the right-hand axis show the calculated and required primary debt coverage requirements. The solid lines pertain to the primary debt coverage requirement and the dashed lines to the secondary requirement.
Figure 3-1: Proposed Water Enterprise Revenue Adjustments and Debt Coverage Ratios Figure 3-2 graphically illustrates the Water Enterprise Financial Plan – it compares existing and proposed revenues with projected expenses. The expenses include water supply, O&M, debt service, capital costs, and reserves transfers shown by the stacked bars. The horizontal orange and blue lines show total revenues at Debt Coverage Calculation FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 Projected Facility Fees Revenue $3,509,850 $3,517,350 $3,509,350 $2,851,350 $2,850,600 Projected Non-Potable Revenue $520,812 $575,329 $598,564 $620,562 $640,287 Projected Water Revenue $30,645,613 $33,009,371 $35,163,352 $37,525,497 $40,079,160 Non-Potable O&M Expenses $520,812 $575,329 $598,564 $620,562 $640,287 Water O&M Expenses (no depr.) $24,245,092 $25,711,407 $27,522,409 $29,444,983 $31,462,500 Total Debt Service $3,509,850 $3,517,350 $3,509,350 $2,851,350 $2,850,600 Primary Requirement
Calculated Debt Coverage 282% 307% 318% 383% 402%
Required Debt Coverage 125% 125% 125% 125% 125%
Secondary Requirement
Calculated Debt Coverage 182% 207% 218% 283% 302%
Required Debt Coverage 100% 100% 100% 100% 100%
0%
50%
100%
150%
200%
250%
300%
350%
0%
1%
2%
3%
4%
5%
6%
7%
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Rev Adj Revenue Adjustments & Debt Coverage Debt Covg
Revenue Adjustments Primary Debt Coverage - Calc
Primary Debt Coverage - Reqd Secondary Debt Coverage - Calc Secondary Debt Coverage - Reqd
City of Brentwood / Water and Wastewater Rate Study 19
existing and proposed rates, respectively. Current revenue from existing rates, in orange, does not meet future total expenses and clearly demonstrates the need for revenue adjustments.
Figure 3-2: Proposed Potable Water Financial Plan
Figure 3-3 summarizes the projected CIP to be funded by water rates.
Figure 3-3: Projected Water Enterprise Capital Projects Figure 3-4 displays the resulting fund balance for the water utility. The red line represents the total current target, which is equal to 30 percent of annual operating expenses and debt service payments, based on Budget and Fiscal Policy 2.7.3, adopted June 22, 2021.
($10)
$0
$10
$20
$30
$40
$50
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Millions
Potable Water Financial Plan
Water Supply O&M Expenses Debt Service Capital PAYGO
Reserves Transfer Rev - Current Rev - Proposed
$2.3
$4.5
$3.5
$2.2 $2.2
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$4.0
$4.5
$5.0
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Millions
Capital Financing Plan
Bond Funded CIP Rate Funded CIP
City of Brentwood / Water and Wastewater Rate Study 20
Figure 3-4: Water Enterprise Total Cash Balance
Table 3-10 shows the projected cash balance for the water enterprise using the City’s projected beginning balance for FY 2024. This table corresponds with Figure 3-4.
Table 3-10: Projected Water Enterprise Cash Balance
3.5. Water Cost-of-Service Analysis
A cost-of-service analysis distributes a utility’s revenue requirements (costs) to each customer class in proportion to the service received. After determining a utility’s revenue requirements, the next step in a costof-service analysis is to functionalize its O&M costs as follows:
• Supply (Surface Water) – represents the cost of purchasing surface water and production from groundwater wells
• Treatment – represents the cost of treating the water • Storage – represents the cost of the reservoirs
• Distribution – represents the operating and maintenance cost of the water distribution system • Utility Billing – represents the costs associated with billing and customer service • Non-Potable – represents the cost of operating and maintaining the non-potable water system The functionalization of costs allows us to better allocate the functionalized costs to the cost causation components. The cost causation components include:
• Supply – costs associated with providing water supply to all customers $13.1M
$10.3M
$8.8M
$9.6M
$11.0M
$0
$2
$4
$6
$8
$10
$12
$14
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Millions
Water Fund Balance
Total Funds Current Target incl 30% Reserve
Water Fund FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Beginning Balance $14,513,780 $13,137,625 $10,305,399 $8,806,849 $9,610,406 Net Cash Flow ($1,376,156) ($2,832,225) ($1,498,550) $803,557 $1,362,356 Ending Balance $13,137,625 $10,305,399 $8,806,849 $9,610,406 $10,972,762
City of Brentwood / Water and Wastewater Rate Study 21
• Base Delivery costs – costs associated with providing service under average conditions • Peaking costs (maximum day and maximum hour) – costs that are associated with meeting the peak demand in excess of the average rate of use
• Fire flow capacity – costs associated with providing capacity within the water system to supply water to public fire hydrants and private fire sprinkler systems. Fire sprinkler systems are required for all new residential and nonresidential structures per California Building Standards Codes. • Meter service – costs associated with maintenance and capital costs of meters and services • Billing and customer service – costs incurred to provide billing and customer service • General and administrative costs – costs that cannot be specifically allocated to one of the other cost causation components
Peaking costs are further divided into maximum day and maximum hour demand. The maximum day demand is the maximum amount of water used in a single day in a year. The maximum hour demand is the maximum usage in an hour on the maximum usage day. Different facilities, such as distribution and storage facilities (and the O&M costs associated with those facilities), are designed to meet the peaking demands of customers. Therefore, extra capacity1 costs include the O&M and capital costs associated with meeting peak customer demand. This method is consistent with the AWWA M1 Manual and is widely used in the water industry to perform cost-of-service analyses.
3.5.1. Allocation of Functionalized Expenses to Cost Components After functionalizing expenses, the next step is to allocate the functionalized expenses to cost causation components. To do so we must identify system wide peaking factors, which were provided by the City and are shown in Error! Reference source not found.. The system-wide peaking factors, based on the City March 2006 Water Master Plan, are used to derive the cost component allocation bases (i.e., percentages) shown in Table 3-11. Functionalized expenses are then allocated to the cost components using these allocation bases.
To understand the interpretation of the percentages, we must first establish the base use as the average daily demand during the year.
Table 3-11: System-Wide Peaking Factors and Allocation to Cost Causation Components Source: City of Brentwood Water Master Plan
To determine the relative proportion of costs to assign to Base Delivery, Max Day and Max Hour, allocations are calculated based on these factors. Cost components that are related to the provision of average day demand (ADD), such as source of supply, are allocated 100 percent to Base Delivery. Cost components that are designed to meet Max Day peaks, such as reservoirs and transmission facilities, are allocated to Base Delivery and Max Day factors. Since facilities such as reservoirs and distribution systems are also designed to provide capacity for fire supply, an allocation is also provided for fire flow, which is subtracted from the Base Delivery and Max Day components. The Max Day allocation is as follows:
1 The terms extra capacity, peaking and capacity costs are used interchangeably.
Factor Base Delivery Max Day Max Hour Fire
Base 1.00 100% 0% 0% 0%
Max Day 2.10 43% 47% 0% 10%
Max Hour 4.00 22% 24% 44% 10%
City of Brentwood / Water and Wastewater Rate Study 22
Base Delivery: 43% = (1.00/2.10) x 100 – 5% (half the fire allocation) Max Day: 47% = (2.10-1.00)/2.10 x 100 – 5% (half the fire allocation) Fire: 10%
The fire allocation is based on Insurance Services Office (ISO) standard. Cost components such as those related to the distribution system that are designed for Max Hour peaks are allocated similarly. The allocation of Max Hour facilities is shown below:
Base Delivery: 22% = (1.00/4.00) x 100 – 3.33% (1/3 fire allocation) Max Day: 24% = (2.10-1.00)/4.00 x 100 – 3.33% (1/3 fire allocation) Max Hour: 44% = (4.00-2.10)/4.00 x 100 – 3.33% (1/3 fire allocation) Fire: 10%
Collectively the maximum day and hour cost components are known as peaking costs. These allocation bases are used to assign the functionalized costs to the cost causation components.
In the absence of daily and hourly peaking factors, we use monthly peaks for the different customer classes.
For the analysis to spread the costs among the different classes equitably, it is important to get the relative ratios of the peaks, which are provided by the monthly peaks. Table 3-12 shows the derivation of the peaking factors by customer class and tier by dividing the total maximum monthly usage by the average monthly usage for each customer class and tier based on monthly water usage records provided by the City. These peaking factors are used to allocate the peaking costs to each customer class and tier in the rate derivation section.
Table 3-12: Peaking Factors by Customer Class
To allocate meter-related costs appropriately, the concept of equivalent meters needs to be understood. By using equivalent meters instead of a straight meter count, the analysis accounts for the fact that larger meters impose greater demands and are more expensive to install, maintain, and replace than smaller meters and commit a greater capacity in the system. Equivalent meters are used in calculating meter service and capacity costs.
Customer Proposed Tiers Max Monthly Average Monthly Peaking Specific Kgal Kgal Kgal Factor
Residential 295,504 209,334 1.41
Tier 1 5 101,409 95,426 1.06
Tier 2 14 118,116 77,963 1.52
Tier 3 20 36,373 18,413 1.98
Tier 4 21+ 39,606 17,532 2.26
Non-Residential 90,866 56,454 1.61
Tier 1 5 4,274 3,826 1.12
Tier 2 6+ 86,592 52,629 1.65
Hydrant 3,032 824 3.68
City of Brentwood / Water and Wastewater Rate Study 23
Equivalent meters are based on meter hydraulic capacity. Equivalent meters represent the potential demand on the water system in terms of the base or smallest meter size. A ratio of hydraulic capacity is calculated by dividing large meter capacities by the base meter capacity. The base meter is the smallest meter, in our case, a 3/4-inch meter. The actual number of meters by size is multiplied by the corresponding capacity ratio to calculate equivalent meters. The capacity ratio is calculated using the meter capacity in gallons per minute (gpm) provided in the AWWA M1 Manual (7th Edition). Table 3-13 shows the equivalent meters for FY 2024.
Table 3-13: Equivalent Meters
Table 3-14 allocates the O&M expenses and asset values to each cost component. The functional costs are allocated according to industry standards based on the nature of the water function. For example: water supply and production costs are allocated 100 percent to the Supply component. Treatment costs are allocated on the basis of Max Day because plants are designed to meet Max Day demand. Distribution costs are allocated on the basis of Max Hour and fire supply because distribution systems are designed to meet instantaneous peaks (Max hour) and fire flow requirements. Utility billing costs are allocated 100 percent to the Customer component. Some costs, which cannot be readily classified into one of the functions, are allocated to General and then spread amongst all the other cost causation components proportionate to the overall cost allocation.
Capacity AWWA Number of Equivalent
Meter Size (gpm) Ratio Meters Meters
5/8" or 3/4" 30 1.0 8,122 8,122
1" 50 1.7 12,888 21,479
1 1/2" 100 3.3 253 843
2" 160 5.3 465 2,480
3" 350 11.7 43 500
4" 630 21.0 36 752
6" 1300 43.3 11 488
Total 21,817 34,663
City of Brentwood / Water and Wastewater Rate Study 24
Table 3-14: Allocation of Functionalized O&M and Capital Expenses to Cost Causation Components - Water
Table 3-14Error! Reference source not found. shows the total resulting cost causation component allocation for O&M expenses. This resulting allocation is used to allocate the City’s operating revenue requirement to the cost causation components.
Table 3-14 also shows the total allocation for the City’s assets, which are used to allocate the capital costs.
The resulting total asset allocation is derived in a similar manner as the O&M allocation - first, Raftelis functionalized the City’s assets and then allocated them to the cost causation components based upon asset function and utilization resulting in the asset total allocation shown at the bottom of Table 3-14. The capital costs are allocated on the basis of assets because the capital costs are used to replace assets, and in the long term all assets need to be replaced. This allocation method also provides a more stable allocation of capital costs, which can vary significantly from year-to-year both in size and in function.
O&M Allocation Supply Base Delivery Max Day Max Hour Fire Pumping Meter Customer General TOTAL Supply (Surface Water) 100% 100%
Production (Wells) 100% 100%
Treatment 48% 52% 100%
Distribution 22% 24% 44% 10% 100%
Utility Billing 100% 100%
Transfer to Capital R&R 36% 37% 18% 6% 1% 2% 100%
O&M Allocation Supply Base Delivery Max Day Max Hour Fire Pumping Meter Customer General TOTAL Supply (Surface Water) $12,090,971 $0 $0 $0 $0 $0 $0 $0 $0 $12,090,971 Production (Wells) $2,503,519 $0 $0 $0 $0 $0 $0 $0 $0 $2,503,519 Treatment $0 $1,090,869 $1,199,956 $0 $0 $0 $0 $0 $0 $2,290,824 Distribution $0 $1,094,220 $1,220,477 $2,230,526 $505,025 $0 $0 $0 $0 $5,050,248 Utility Billing $0 $0 $0 $0 $0 $0 $0 $2,309,529 $0 $2,309,529 Transfer to Capital R&R $0 $977,032 $987,766 $490,392 $151,322 $0 $19,924 $0 $59,861 $2,686,296 TOTAL O&M EXPENSES $14,594,490 $3,162,121 $3,408,198 $2,720,918 $656,347 $0 $19,924 $2,309,529 $59,861 $26,931,388 TOTAL O&M Allocation, % 54.2% 11.7% 12.7% 10.1% 2.4% 0.0% 0.1% 8.6% 0.2% 100% Capital Allocation Supply Base Delivery Max Day Max Hour Fire Pumping Meter Customer General TOTAL Land 100% 100%
Well 100% 100%
Reservoir 43% 47% 10% 100%
Distribution 22% 24% 44% 10% 100%
Transmission 43% 47% 10% 100%
Buildings 100% 100%
Machinery & Equipment 100% 100%
Vehicles 100% 100%
Pumps 48% 52% 100%
Treatment Plant 48% 52% 100%
Non-Potable
Capital Allocation Supply Base Delivery Max Day Max Hour Fire Pumping Meter Customer General TOTAL Land $0 $0 $0 $0 $0 $0 $0 $0 $62,556 $62,556
Well $0 $4,925,469 $0 $0 $0 $0 $0 $0 $0 $4,925,469
Reservoir $0 $4,470,940 $4,970,486 $0 $1,049,047 $0 $0 $0 $0 $10,490,474 Distribution $0 $14,062,805 $15,685,436 $28,666,486 $6,490,525 $0 $0 $0 $0 $64,905,252 Transmission $0 $5,566,622 $6,188,591 $0 $1,306,135 $0 $0 $0 $0 $13,061,348 Buildings $0 $0 $0 $0 $0 $0 $0 $0 $3,436,693 $3,436,693 Machinery & Equipment $0 $0 $0 $0 $0 $0 $1,164,664 $0 $0 $1,164,664 Vehicles $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Pumps $0 $1,191,739 $1,310,913 $0 $0 $0 $0 $0 $0 $2,502,653 Treatment Plant $0 $26,896,087 $29,585,696 $0 $0 $0 $0 $0 $0 $56,481,783 TOTAL ASSETS $0 $57,113,662 $57,741,123 $28,666,486 $8,845,707 $0 $1,164,664 $0 $3,499,249 $157,030,892 Total Asset Allocation, % 0% 36.4% 36.8% 18.3% 5.6% 0.0% 0.7% 0.0% 2.2% 100%
City of Brentwood / Water and Wastewater Rate Study 25
3.5.2. Revenue Requirement Determination
Table 3-15 shows the revenue requirement derivation with the total revenue required from rates. The totals shown in the “Operating” and “Capital” columns are the total O&M and capital revenue requirements, respectively. The total is the rate revenue to be collected through rates. This operating and capital revenue requirement will be allocated to the cost causation components using the allocation percentages shown in Table 3-14 to determine unit costs.
Table 3-15: Water Revenue Requirement Determination
Raftelis calculated the revenue requirement using FY 2024 expenses, which include O&M expenses, rate funded capital expenses, and existing and proposed debt service. To arrive at the rate revenue requirement, we subtract revenue offsets from other expenses and adjust for annual cash balances (transfers to or from reserves). The adjustments are added to arrive at the net revenue requirement from rates. This is the amount that fixed charge and commodity rates are designed to collect.
3.5.3. Unit Cost Component Derivation
Our end goal is to proportionately distribute the cost causation components to each user class. To do so we must calculate the cost causation component unit costs, which starts by assessing the total service units demanded by each class for each cost causation component. This is shown in Table 3-16Error! Reference source not found.. The capacity or peaking factor for each customer class is taken from Table 3-12. The total equivalent meters are from Table 3-13.
FY 2024 Operating Capital Total
Revenue Requirements
O&M Expenses $24,245,092 $24,245,092
Transfer to Capital R&R $2,686,296 $2,686,296
Existing Debt Service $2,835,656 $2,835,656
Rate Funded Capital Projects $2,254,725 $2,254,725
Reserve Funding $0 $0
Total Revenue Requirements $26,931,388 $5,090,381 $32,021,769 Less: Revenue Offsets
Current Services $292,964 $292,964
Other Revenue $338,109 $338,109
Standby Charges $38,616 $38,616
Operating Transfers $350,000 $350,000
Interest Income $78,613 $78,613
Total Revenue Offsets $1,059,686 $38,616 $1,098,302
Adjustments
Transfer to (from) Reserves ($1,376,156) ($1,376,156)
Total Adjustments $0 ($1,376,156) ($1,376,156)
Net Revenue Requirement from Rates $25,871,702 $3,675,609 $29,547,311
City of Brentwood / Water and Wastewater Rate Study 26
Table 3-16: Derivation of Service Units - Water
Table 3-17 shows the cost causation component unit cost derivation. The operating revenue requirement shown in Table 3-15 is allocated to the cost causation components using the total O&M allocation from Table 3-14. Similarly, the capital revenue requirement in Table 3-15 is allocated to the cost causation components using the total asset allocation from Table 3-14. General and Administrative costs, which cannot be tied to a specific function, are redistributed in proportion to the resulting allocation of the other cost causation components, except Supply. The Fire cost component represents capacity available in the water system to supply water flow for fire protection and is reallocated to the meter component since all customers share in this capacity cost. To provide revenue stability, a portion of the extra capacity costs is allocated to the meter component to collect approximately 34 percent of the rate revenue from fixed charges. This also covers the City’s fixed costs that are not dependent upon water volume. The total adjusted cost-of-service is divided by the units of service to calculate the unit cost. For example, the unit cost for the base component is determined by dividing the total base cost by total water use in kgal. For another example, annual billing and customer service costs are divided by the estimated number of monthly bills in a year. The unit costs are used to distribute the cost causation components to the customer classes.
Table 3-17: Unit Cost Calculation - Water
3.5.4. Distribution of Cost Causation Components to Customer Classes The final step in a cost-of-service analysis is to distribute the cost causation components to the user classes using the unit costs derived in Table 3-17 to arrive at the cost to serve each customer class. The classes are categorized based on similar land use and water usage habits. Table 3-18 shows the derivation of the cost to serve (i.e., cost-of-service for) each class. The Supply, Base Delivery, Max Day, and Max Hour cost components are collected through the commodity (volumetric) rates ($/kgal) for potable water. The Meter Annual Average Capacity Total Extra Capacity Total Extra No. of No. of Monthly Use Daily Use Factor Capacity Capacity Factor Capacity Capacity Meters Bills Tiers (kgal) (kgal) (kgal/day) (kgal/day) (kgal/day) (kgal/day) (kgal/day) ( Equiv.) (No.) Residential
Tier 1 5 1,174,264 3,217 1.06 3,410 193 2.02 6,496 3,085 Tier 2 14 959,379 2,628 1.52 3,995 1,367 2.90 7,610 3,615 Tier 3 20 226,581 621 1.98 1,229 608 3.77 2,341 1,112
Tier 4 21+ 215,738 591 2.26 1,336 745 4.30 2,544 1,209
Non-Residential
Tier 1 5 47,077 129 1.12 144 15 2.13 275 131
Tier 2 6+ 647,621 1,774 1.65 2,928 1,153 3.14 5,576 2,649 Hydrant 9,893 27 3.68 100 73 7.01 190 90
TOTAL 3,280,554 4,154 11,891 34,663 261,803
Maximum Day Requirements Maximum Hour Requirements
Supply Base Delivery Max Day Max Hour Fire Pumping Meter Customer General TOTAL Operating Expenses $14,020,232 $3,037,699 $3,274,094 $2,613,856 $630,521 $0 $19,140 $2,218,654 $57,506 $25,871,702 Capital Expenses $0 $1,336,855 $1,351,542 $670,994 $207,051 $0 $27,261 $0 $81,907 $3,675,609 Total Cost of Service $14,020,232 $4,374,554 $4,625,635 $3,284,851 $837,572 $0 $46,401 $2,218,654 $139,412 $29,547,311 Allocation of General Cost $39,633 $41,908 $29,761 $7,588 $0 $420 $20,101 ($139,412) $0 Allocation of Public Fire Protection Cost ($845,160) $845,160 $0 Allocation of Peaking Cost to Meter ($4,247,465) ($3,016,296) $7,263,761 $0 Total Adjusted Cost of Service $14,020,232 $4,414,187 $420,079 $298,315 $0 $0 $8,155,742 $2,238,755 $0 $29,547,311 Unit of Service 3,280,554 3,280,554 4,154 11,891 34,663 261,803 Unit kgal kgal kgal/day kgal/day equiv meters bills
Unit Cost $4.27 $1.35 $101.12 $25.09 $19.61 $8.55
City of Brentwood / Water and Wastewater Rate Study 27
and Customer cost components are collected through the City’s monthly meter service charge, thereby providing fixed revenue. The proposed fixed revenue from rates is retained at approximately 34 percent to match the current fixed revenue.
Table 3-18: Allocation of Cost to Customer Class – Water To derive the variable cost to serve each class, the unit costs from Table 3-17 are multiplied by the corresponding service units shown in Table 3-16 for each customer class. For example, the supply cost for the residential class is calculated by multiplying the supply unit cost ($4.27 per kgal) by the annual residential use in each tier (Table 3-16). Similar calculations for each of the remaining user classes and tiers and cost components yield the total variable cost to serve each user class shown in Table 3-18. Costs charged to meters, including meter and customer costs, are applied to customers based on their meter size. Note that the total cost-of-service is equal to the revenue requirement in Table 3-15, as intended. We have now calculated the cost to serve each user class and can proceed to design rates to collect the cost to serve each class.
Table 3-16 through Table 3-17 are reproduced in Appendix A in a larger font format.
3.6. Water Rate Design
3.6.1. Existing Rate Structure and Rates
The City’s existing rate structure consists of a monthly base charge, which is a fixed charge determined by the size of the meter serving a property. In addition, the City has a four-tiered commodity rate structure for residential customers and a two-tiered rate structure for non-residential customers. Residential customers that include an Accessory Dwelling Unit (“ADU”), in addition to the main dwelling unit, are charged at a MultiFamily rate. ADUs with water use that is separately metered are billed separately from the main dwelling unit at a Single Family rate. Non-potable water customers and customers using water from hydrants, typically for construction purposes, have a uniform rate. Table 3-19 shows the existing rate structure and rates.
Supply Base Delivery Max Day Max Hour Meter Customer TOTAL Residential
Tier 1 $5,018,499 $1,580,045 $19,519 $77,408 $6,695,471 Tier 2 $4,100,136 $1,290,904 $138,207 $90,688 $5,619,935 Tier 3 $968,350 $304,879 $61,516 $27,900 $1,362,646
Tier 4 $922,009 $290,289 $75,307 $30,322 $1,317,927
Non-Residential
Tier 1 $201,194 $63,345 $1,565 $3,279 $269,383
Tier 2 $2,767,763 $871,414 $116,620 $66,454 $3,822,250
Hydrant $42,280 $13,312 $7,345 $2,264 $65,201
Base Meters $8,155,742 $2,238,755 $10,234,855
TOTAL $14,020,232 $4,414,187 $513,430 $364,607 $7,996,099 $2,238,755 $29,547,311
City of Brentwood / Water and Wastewater Rate Study 28
Table 3-19: Existing Monthly Water Rates
3.6.2. Proposed Monthly Fixed Charge
Table 3-20 shows the derivation of the monthly base charge. The unit costs derived in Table 3-17 feed into the meter charge derivation, as the meter charge is designed to collect the amount of revenue shown in the “Meter” and “Customer” columns of Table 3-20.
Table 3-20: Derivation of the Monthly Fixed Charge
Current
Monthly Base Rate
Meter Size
5/8" or 3/4" $27.61
1" $39.03
1 1/2" $67.61
2" $101.90
3" $210.52
4" $295.65
6" $753.55
Commodity Rate ($/kgal)
Residential Monthly (kgal)
Tier 1 5 $3.28
Tier 2 14 $6.31
Tier 3 20 $7.41
Tier 4 21+ $7.64
Non-Residential
Tier 1 5 $3.39
Tier 2 6+ $6.87
Hydrant $6.87
Non-Potable $1.60
Meter Size Meter Ratio Meter Customer/
Billing Total Charges Current Charges Difference
5/8" or 3/4" 1.00 $19.61 $8.55 $28.16 $27.61 2%
1" 1.67 $32.68 $8.55 $41.24 $39.03 6%
1 1/2" 3.33 $65.36 $8.55 $73.91 $67.61 9%
2" 5.33 $104.57 $8.55 $113.13 $101.90 11%
3" 11.67 $228.75 $8.55 $237.31 $210.52 13%
4" 21.00 $411.76 $8.55 $420.31 $295.65 42%
6" 43.33 $849.66 $8.55 $858.20 $753.55 14%
City of Brentwood / Water and Wastewater Rate Study 29
Two components comprise the fixed meter charges: meter capacity and customer service (or billing), both of which are described below. This charge recognizes the fact that even when a customer does not use any water, the City incurs fixed costs in connection with maintaining the ability or readiness to serve each connection.
3.6.2.1. Meter Capacity Component
The meter capacity component collects capacity (also known as peaking) related costs. Capacity-related costs can be allocated to and collected through the meter service charge by meter size. This reflects the fact that larger meters have the potential to demand more capacity compared to smaller meters. The potential capacity demanded is proportional to the potential flow through each meter size as established by the AWWA hydraulic capacity ratios, discussed earlier in Table 3-13, and shown in the “Meter Ratio” column of Table 3-20. The ratios show the potential flow through each meter size compared to the flow through a 3/4- inch meter. For example, the “Meter Ratio” column in Table 3-20 shows that the flow through a 2-inch meter is 5.33 times that of a 3/4-inch; therefore, the meter capacity component of the base charge is 5.33 times that of the 3/4-inch meter. The meter capacity component for a 3/4-inch meter is shown in the “Meter” column of Table 3-20, and the capacity component for larger meters is scaled up using the AWWA capacity ratios shown in the “Meter Ratio” column of Table 3-20.
Allocating capacity costs by meter size is a common way to ensure capacity costs are passed on to customers requiring greater capacity in the system. Meter charges provide revenue stability, especially in light of decreasing revenues during a drought or other water shortage.
3.6.2.2. Customer/Billing Component
The customer/billing component recovers costs associated with meter reading, customer billing, and collection, as well as customer service costs. These costs are the same for all meter sizes, as it costs the same to provide billing and customer services to a small meter as it does a larger meter. The customer/billing component is shown in the “Customer/Billing” column of Table 3-20.
3.6.3. Proposed Commodity Rates
3.6.3.1. Residential Tier Definitions
The City’s current rate structure includes four tiers for residential customers. Tier 1 is from 0 to 5 kgal per month, Tier 2 is 6 to 14 kgal per month, Tier 3 is 15 to 20 kgal per month, and Tier 4 is 21 kgal per month or more. The water use patterns in the last few years have been impacted by drought, the Covid epidemic and economic changes; therefore, we have used the data from the previous rate study. Based on the previous rate study, using the last normal consumption patterns, the first tier provided water from the lowest cost source.
Tier 2 (6 to 14 kgal per month) represents the FY 2013 and FY 2014 average monthly water usage for residential customers. Tier 3 (15 to 20 kgal per month) represents the FY 2013 and FY 2014 average summer water usage between June and September for residential customers. This allocation provides sufficient outdoor water for an average residential customer. Tier 4 represents usage over 20 kgal per month.
Raftelis proposes that the City retain its existing residential tier definitions to minimize customer impacts and provide rate stability.
City of Brentwood / Water and Wastewater Rate Study 30
3.6.3.2. Non-Residential Tier Definitions
The City’s current rate structure includes two tiers for non-residential customers. Tier 1 is from 0 to 5 kgal per month. Tier 2 is 6 kgal per month or more. Raftelis is proposing that the City retains its existing nonresidential tier definitions.
The first tier for both residential and non-residential customers was based on the available local groundwater during the last rate study. The total groundwater production spread on all the users resulted in an allocation of five kgal per month per residential dwelling unit and non-residential account.
3.6.3.3. Unit Cost Definitions
The commodity rates for each class and tier are derived by summing the unit rates ($/kgal) for:
• Supply
• Base Delivery
• Peaking
Supply costs are costs related to the cost of purchasing and producing water. The City has three sources of water, each incurring different costs, as shown in Table 3-21. The City wishes to provide the minimum 5 kgal of water to each residential unit and non-residential account for essential use; however, because of quality considerations, groundwater alone cannot provide the 5 kgal per account. Water from the BWTP will be used to meet this requirement. Since this is incremental water required from BWTP, only the incremental operating cost is considered along with the fixed cost based on the treatment capacity at BWTP. The incremental variable cost of BWTP is $325 per ac-ft. BWTP’s fixed cost of $3.1 million, based on the treatment capacity of 16 mgd, results in $173 per ac-ft for a net cost of $498/ac-ft or $1.14 per kgal. The resultant unit cost shown on Line 8 of Table 3-21 is $1.74 per kgal. It should be noted that both residential and non-residential accounts benefit from this least cost water.
City of Brentwood / Water and Wastewater Rate Study 31
Table 3-21: Allocation of Water Supply
Each source of supply is allocated to each customer class based on the proportional amount of water usage in each class. Within each customer class, each available supply is allocated to each tier based on the use in each tier, with priority given to the lower tiers. For example, the residential class is allocated 1,358,860 kgal of the least-cost water. This principle applies to the non-residential customer class as well.
Base Delivery costs are the operating and capital costs associated with delivering water to all customers at a constant average rate of use – also known as serving customers under average daily demand conditions.
Therefore, base delivery costs are spread over all units of water irrespective of customer class or tiers. Based on Table 3-17, the delivery or base unit cost is $1.35 per kgal.
Line No. Sources Least Cost
Water
RBWTP
Brentwood
WTP
Total
1 Sales Capacity at Source (kgal) 509,092 545,397 2,226,065 3,280,554 2 Production Costs at Source $961,187 $2,938,968 $10,120,077 $14,020,232 3 Unit Cost by Source, $/kGal $1.89 $5.39 $4.55
4 Actual Addn Sales, Tier 1 Requirements, kgal 922,740
5 Total Sales, kgal 1,431,832 545,397 1,303,325
6 Marginal Cost of BWTP $1,534,408 $2,938,968 $8,585,669 $13,059,045 7 Adjusted Cost $2,495,595 $2,938,968 $8,585,669 $14,020,232 8 Unit Cost ($/kgal) $1.74 $5.39 $6.59 $4.27
9 Unit Cost ($/AF) $567.90 $1,755.79 $2,146.40 $1,392.51 Sources (after transfers) Least Cost
Water
RBWTP
Brentwood
WTP
Total
10 Sales (kgal) 1,431,832 545,397 1,303,325 3,280,554
11 Cost $2,495,595 $2,938,968 $8,585,669 $14,020,232
12 Unit Cost ($/kgal) $1.74 $5.39 $6.59 $4.27
Account Usage (kgal) Least-Cost
Water
RBWTP
Brentwood
WTP
Total Unit Cost
13 Residential 22,648 2,575,963 1,358,860 517,602 699,501 2,575,963 $3.79 14 Non-Residential 1,216 694,698 72,972 27,796 593,930 694,698 $6.03 15 Hydrant 0 9,893 0 0 9,893 9,893 $6.59
16 TOTAL 23,864 3,280,554 1,431,832 545,397 1,303,325 3,280,554 $4.27 17 Usage (kgal) Least-Cost
Water
RBWTP
Brentwood
WTP
Total Unit Cost
18 Residential
19 Tier 1 5 1,174,264 1,174,264 0 0 1,174,264 $1.74
20 Tier 2 14 959,379 184,596 517,602 257,182 959,379 $5.01 21 Tier 3 20 226,581 0 0 226,581 226,581 $6.59
22 Tier 4 21+ 215,738 0 0 215,738 215,738 $6.59
23 Subtotal Residential 2,575,963 1,358,860 517,602 699,501 2,575,963 $3.79 24 Non-Residential
25 Tier 1 5 47,077 47,077 0 0 47,077 $1.74
26 Tier 2 6+ 647,621 25,895 27,796 593,930 647,621 $6.34 27 Subtotal Non-Residential 694,698 72,972 27,796 593,930 694,698 $6.03 28 Hydrant 9,893 0 0 9,893 9,893 $6.59
29 TOTAL 3,280,554 1,431,832 545,397 1,303,325 3,280,554 $4.27
City of Brentwood / Water and Wastewater Rate Study 32
Peaking or extra-capacity costs represent costs incurred to meet customer peak demands in excess of base use (or average daily demand). Total extra capacity costs are comprised of maximum day and maximum hour demands. The peaking costs are distributed to each tier and class using peaking factors derived from customer use data. Table 3-22 shows the peaking unit cost for each customer class and tier, which is calculated by dividing the total peaking (max day plus max hour) costs for each class and tier from Table 3-18, by the total usage in each class and tier from Table 3-16.
Table 3-22: Peaking Cost Calculation
Table 3-23 shows the proposed commodity rate for FY 2024 for each customer class, which is the sum of the three previously discussed rate components. The Supply component is from Table 3-21, the Base Delivery component is from Table 3-17, and the Peaking component is from Table 3-22.
Table 3-23: Proposed Commodity Rate
Customer Class Monthly Tier
(kgal) Peaking Costs Usage (kgal) Unit Cost
Residential
Tier 1 5 $96,927 1,174,264 $0.08
Tier 2 14 $228,895 959,379 $0.24
Tier 3 20 $89,416 226,581 $0.39
Tier 4 21+ $105,629 215,738 $0.49
Non-Residential
Tier 1 5 $4,844 47,077 $0.10
Tier 2 6+ $183,074 647,621 $0.28
Hydrant $9,609 9,893 $0.97
Monthly Tier Supply Base Total
(kgal) Supply Delivery Rate
Residential
Tier 1 5 $1.74 $1.35 $0.08 $3.18
Tier 2 14 $5.01 $1.35 $0.24 $6.60
Tier 3 20 $6.59 $1.35 $0.39 $8.33
Tier 4 21+ $6.59 $1.35 $0.49 $8.43
Subtotal Residential
Non-Residential
Tier 1 5 $1.74 $1.35 $0.10 $3.20
Tier 2 6+ $6.34 $1.35 $0.28 $7.98
Subtotal Non-Residential
Hydrant $6.59 $1.35 $0.97 $8.91
Non-Potable $1.08
Customer Class Peaking
City of Brentwood / Water and Wastewater Rate Study 33
3.6.3.4. Non-Potable Water
Non-potable water rates are calculated to recover costs associated with providing non-potable water service.
Table 3-24 shows the calculation for the City’s retail non-potable water customers.
Table 3-24: Non-Potable Water Rate Calculation
3.6.4. 5-Year Proposed Monthly Water Rates
Table 3-25 shows the proposed rates for the next five years. These rates are effective on July 1 of each fiscal year. The City reserves the right to pass through costs that are not within the City’s control, such as water purchase costs, electrical costs, chemical costs, etc. to the proposed rates when such an action is deemed necessary. The financial plan has built-in projected increases in these costs. However, if those increases exceed the projected amount, the additional costs may be recovered through the rates.
Table 3-25: Proposed Monthly Water Rates
FY 2024 FY 2025 FY 2026 FY 2027 FY 2028
Operating Expenses $520,812 $575,329 $598,564 $620,562 $640,287 Capital Expenses $0 $0 $0 $0 $0
Total Expenses $520,812 $575,329 $598,564 $620,562 $640,287 Non-Potable Usage (kgal) 484,299 487,254 488,440 489,834 491,233 Non-Potable Rate ($/kgal) $1.08 $1.19 $1.23 $1.27 $1.31 Current July 1, 2023 July 1, 2024 July 1, 2025 July 1, 2026 July 1, 2027 Monthly Base Rate
Meter Size
5/8" or 3/4" $27.61 $28.16 $30.00 $31.95 $34.03 $36.25
1" $39.03 $41.24 $43.93 $46.79 $49.84 $53.08
1 1/2" $67.61 $73.91 $78.72 $83.84 $89.29 $95.10
2" $101.90 $113.13 $120.49 $128.33 $136.68 $145.57
3" $210.52 $237.31 $252.74 $269.17 $286.67 $305.31
4" $295.65 $420.31 $292.65 $293.65 $294.65 $295.65
6" $753.55 $858.20 $913.99 $973.40 $1,036.68 $1,104.07
Commodity Rate ($/kgal)
Residential Monthly (kgal)
Tier 1 5 $3.28 $3.18 $3.39 $3.62 $3.86 $4.12
Tier 2 14 $6.31 $6.60 $7.03 $7.49 $7.98 $8.50
Tier 3 20 $7.41 $8.33 $8.88 $9.46 $10.08 $10.74
Tier 4 21+ $7.64 $8.43 $8.98 $9.57 $10.20 $10.87
Non-Residential
Tier 1 5 $3.39 $3.20 $3.41 $3.64 $3.88 $4.14
Tier 2 6+ $6.87 $7.98 $8.50 $9.06 $9.65 $10.28
Hydrant $6.87 $8.91 $9.49 $10.11 $10.77 $11.48
Non-Potable $1.60 $1.08 $1.19 $1.23 $1.27 $1.31
City of Brentwood / Water and Wastewater Rate Study 34
3.7. Water Bill Impacts
Table 3-26 shows the impacts of an average residential customer with a 1-inch meter using an average 10 kgal of water monthly.
Table 3-26: Residential Water Monthly Rate Impacts
Residential Usage (kgal) Current Bill Proposed Bill Difference $ Difference % Bills at or below
Average 10 $86.98 $90.14 3.6% $3.16 65.2%
City of Brentwood / Water and Wastewater Rate Study 35
4. Wastewater Rates
The following subsections present the findings and recommendations of the wastewater rate study, including system background information, study assumptions, financial plan, cost-of-service analysis, rate design, and projected customer impacts.
4.1. Wastewater System Background
The City wastewater system collects, treats, and disposes of wastewater from over 20,800 connections as of FY 2023. Wastewater is treated at the City’s Wastewater Treatment Plant (WWTP), which has a current capacity of 5.0 million gallons per day (MGD). The WWTP is an extended aeration/activated sludge facility.
Its treatment system includes preliminary screening and grit removal, oxidation ditches, and denitrification basins providing biological treatment, secondary clarification, tertiary filtration, chlorine disinfection, dechlorination, and a cascade aeration system.2 Treated effluent, if not recycled, is discharged into Marsh Creek. In addition to the treatment plant, the wastewater system includes approximately 200 miles of sewer mains and lateral connections.
4.2. Wastewater Account and Usage Assumptions
Table 4-1 shows that the majority of the City’s wastewater accounts are residential customers. Both the number of accounts and dwelling units are shown for multi-family residential customers, as residential customers are assessed a base and variable charge per dwelling unit but are charged a lateral maintenance fee per account. For single-family residential customers, each dwelling unit corresponds to a single account.
Table 4-1: Projected Wastewater Accounts by Customer Class 2 2015 Urban Water Management Plan.
Actual Projected Budgeted Projected Projected Projected Projected Customer Accounts FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 SFR (units) 19,993 20,235 20,502 20,681 20,754 20,839 20,925 MFR (accounts) 72 73 74 75 75 75 76
MFR (units) 2,200 2,227 2,256 2,276 2,284 2,293 2,303
Auto Sales and Repair 20 20 21 21 21 21 21
Barber & Beauty Shop 11 11 11 11 12 12 12
Bakery 2 2 2 2 2 2 2
Car Washes 6 6 6 6 6 6 6
Gas Stations 17 17 18 18 18 18 18
Grocery Stores 12 12 12 12 12 12 12
Hotels without Restaurants 3 3 3 3 3 3 3
Institutions, Churches, HOAs 49 49 50 50 50 51 51
Laundromats 2 2 2 2 2 2 2
Laundry, Commercial 1 1 1 1 1 1 1
Office Buildings, Banks 113 114 115 116 117 117 118
Restaurants 85 86 87 87 88 88 89
Retail Stores 93 94 95 96 96 97 97
Schools 36 36 37 37 37 38 38
Other Commercial 65 66 67 67 67 68 68
Mixed Use 2 2 2 2 2 2 2
TOTAL ACCOUNT 20,581 20,830 21,105 21,290 21,365 21,452 21,540
City of Brentwood / Water and Wastewater Rate Study 36
The wastewater accounts are projected to increase by approximately 435 accounts from FY 2024 to FY 2028, based on the City’s General Plan population growth rates, and are typically driven by new residential and nonresidential development, as shown in Table 4-2.
Table 4-2: Wastewater Account Growth
Table 4-3 shows the projected billed wastewater flow over the study period by customer class. The revenue calculated for each of the fiscal years in the Financial Plan is a function of the number of dwelling units/accounts, billed wastewater flow, and existing rates. Note that billed wastewater flow for residential customers is based on monthly water usage during the two lowest production winter months when irrigation water is typically not used, and indoor water makes its way to the treatment plant and is capped at 7 kgal per dwelling unit per month. Non-residential billed wastewater flow is based on actual monthly water use since nonresidential customers typically have separate “irrigation only” water service, and water usage does not fluctuate seasonally. Although billed wastewater flow is projected to increase due to account growth, wastewater generation per account is assumed to stay constant throughout the study period since wastewater flow is generated by “indoor” use and does not tend to fluctuate as would “outdoor” or irrigation usage.
Table 4-3: Projected Billed Wastewater Flow by Customer Class, kgal Fiscal Year Account Growth
2023 1.2%
2024 1.3%
2025 0.9%
2026 0.4%
2027 0.4%
2028 0.4%
Actual Budgeted Budgeted Projected Projected Projected Projected Billed Water Use FY 2022 FY 2023 FY 2024 FY 2025 FY 2026 FY 2027 FY 2028 SFR 1,145,264 1,159,122 1,174,422 1,184,703 1,188,891 1,193,746 1,198,640 MFR 109,569 110,895 112,359 113,342 113,743 114,207 114,676 Auto Sales and Repair 2,055 2,080 2,107 2,126 2,133 2,142 2,151 Barber & Beauty Shop 677 685 694 700 703 706 709
Bakery 213 216 218 220 221 222 223
Car Washes 13,093 13,251 13,426 13,544 13,592 13,647 13,703 Gas Stations 18,090 18,309 18,551 18,713 18,779 18,856 18,933 Grocery Stores 15,256 15,441 15,644 15,781 15,837 15,902 15,967 Hotels without Restaurants 4,468 4,522 4,582 4,622 4,638 4,657 4,676 Institutions, Churches, HOAs 15,820 16,011 16,223 16,365 16,423 16,490 16,557 Laundromats 3,726 3,771 3,821 3,854 3,868 3,884 3,900
Laundry, Commercial 88 89 90 91 91 92 92
Office Buildings, Banks 20,684 20,934 21,211 21,396 21,472 21,560 21,648 Restaurants 45,400 45,949 46,556 46,963 47,129 47,322 47,516 Retail Stores 21,947 22,213 22,506 22,703 22,783 22,876 22,970 Schools 19,950 20,191 20,458 20,637 20,710 20,795 20,880 Other Commercial 14,716 14,894 15,091 15,223 15,277 15,339 15,402 Mixed Use 691 699 709 715 717 720 723
TOTAL BILLED FLOW 1,451,707 1,469,273 1,488,667 1,501,699 1,507,007 1,513,162 1,519,366